Vice-chancellors at state-funded universities fear private universities are poised to "cherry-pick" their most lucrative degrees after the government announced plans to double tuition-fees loans for students starting private courses in 2012.

The maximum loan available for students at private universities will rise from just over £3,000 to £6,000, in a move the universities minister, David Willetts, described as a first step towards bringing in private providers of higher education.

Ministers hope competition from private universities will put pressure on public universities to curb fees, after weeks in which many have flocked to charge £9,000 a year. Willetts said: "We want to encourage a more open, dynamic and diverse higher education system, with new alternative providers able to enter the system on fair terms."

There are two private universities in England – Buckingham and BPP – which have degree-awarding powers and several other private providers which focus on professional courses such as business studies, management and law. They are not subject to the same government requirements on widening access to students from poorer backgrounds, or the government cap on student numbers.

Universities UK, representing 133 vice-chancellors, expressed concern that the growth of the private sector in the US had led to a deterioration in quality. Nicola Dandridge, chief executive of Universities UK, said: "Many believe the quality of provision among the for-profit providers in the US has been poor and the costs have been high, particularly in terms of the costs to students and to the state. This has particularly impacted on poorer students. We would also be concerned if private providers cherry-picked the more lucrative courses, making it unsustainable for universities to run the less lucrative but often more socially valuable courses."

The college lecturers' union, UCU, criticised the decision. Sally Hunt, the general secretary, said: "We only need to look at America to see that for-profit higher education is fraught with danger for students and taxpayers alike and, at the very least, needs to be properly regulated."

There are about 4,000 undergraduates studying at private institutions who receive student loans. The increase in funding was welcomed by private providers, including the Institute of Contemporary Music Performance, based in London, which announced a fee of less than £6,000 for its music degree course. Paul Kirkham, the managing director, said: "Our students have a right to expect education and training of the highest standards and relevance without being burdened with unnecessarily high levels of debt."

BPP, which has centres around Britain offering courses including business, accounting and law, announced plans to offer law and business studies degrees for £3,000 a year. The two courses, offered from this autumn at New College, Swindon, will be available at "one of the lowest fees of any university in the UK", it said.

Peter Houillon, chief executive of Kaplan, the private education firm which runs Holborn College in London, said: "We welcome today's announcement by the minister, which will open a greater range of higher-education options for more students.

"As a private higher education institution, Kaplan is able to provide highly tailored and flexible study options, focussing on programmes that lead to professional careers. Students who choose this path will now have access to the same funding opportunities as other traditional university students."

Labour urged the government to publish its higher-education white paper, which was due in winter, instead of revealing policy in "dribs and drabs". The shadow business secretary, John Denham, said: "David Willetts is clearly threatening public universities with cut-price competition from the private sector [which] do not need to meet the requirements of any regulator, or meet access criteria.

"Any discussion of new providers and ways of delivering higher education need to be considered in the context of a strategy for public and private institutions. It is a disgrace that the government have yet to publish a higher-education white paper, even though one was promised months ago."

The government also announced on Wednesday it would increase maintenance loans for students living away from home but studying in London to £7,675 from 2012. Students living in their parental home will be able to borrow up to £4,375.